Kaua‘i is most limited in diversifying its economy compared to all counties in state, UHERO report reveals

A new report out of the University of Hawai‘i revealed that Kaua‘i is the most limited county in Hawai‘i for diversification options in its economy.

In a tourism-concentrated economy, University of Hawaiʻi Economic Research Organization, also known as UHERO, released the report Tuesday, which looks at ways the state could diversify as tourism revenue has shown inconsistent and slow growth for the past 30 years.

The report analyzes the variety of industries across counties in the U.S. and Hawaiʻi to identify what those potential opportunities for the state’s economy might be.

Click here to see the entire report.

Based on industries already in the state, the study shows Hawaiʻi has great potential for ocean-based industries—such as fishing, fish farming and hatcheries, boat building, port and harbor operations, and seafood packaging. Diversifying into these industries can create long-term stability and support growth beyond tourism.

The report showed that all industries on Kaua‘i have lower relationship densities than the other counties, which means there are limited branching opportunities for new industries. Furthermore, many of the industries with higher relatedness densities are unsuitable for Kaua‘i so are disregarded as diversification opportunities on Kaua‘i.

Of the logically feasible industries, finfish fishing appears to be the only strongly feasible option. The report also highlighted hog and pig farming and broilers and other meat-type chicken production, but these industries are probably just as feasible in the other counties in Hawai‘i, it’s just that Kaua‘i seems to have fewer options.

Boat building also has a similar level of relatedness density as these agriculture industries, and perhaps it is possible to also establish some activities in this industry on Kaua‘i.

Given these very limited opportunities, Kaua‘i may want to also consider other strategies that take advantage of its proximity to Honolulu. If connectivity is sufficient to commute regularly, though not every day, it may be possible to take hybrid-remote work in Honolulu and otherwise work from home, offering Kaua‘i residents a more diversified job market.

Additionally, the study highlights opportunities to grow industries statewide that align with Hawaiʻi’s traditional strengths while also offering potential for diversification, such as hospitality, water transportation, and video production.

The report authors — UHERO Assistant Professor Steven Bond-Smith and UHERO graduate research assistant Sumit Ilamkar — developed these possible opportunities after studying the industrial composition of all counties in the U.S. to measure relatedness between industries. To find diversification opportunities they examined the industrial composition of Hawaiʻi’s counties to identify underperforming industries with a higher probability of being more robust because they are related to existing strengths.

“The information in this report will be useful for policymakers and legislators seeking advice for economic development policy and for businesses and entrepreneurs seeking new opportunities,” the report stated. “It also presents Hawaiʻi as a case study of an approach that will be useful for other places looking for strategies to diversify.”

Diversifying Hawaiʻi’s economy is challenging due to the advantages small, open economies gain by specializing in their strengths.

The report identifies industries with significant growth potential that are currently facing obstacles such as inadequate infrastructure, skills shortages, and market and government failures. To achieve greater economic diversification, the report suggests adopting a more ambitious approach that targets these barriers instead of concentrating on already successful sectors.

For long-term effectiveness, these policies must also include ongoing monitoring and strong governance.

“We show how Hawaiʻi initially benefited from specializing in the tourism industry, and how this specialization now exposes Hawaiʻi to short- and long-term risks,” according to the report. “In this way, diversification is not an end in itself but aims to build a more resilient economy that is less exposed to these short- and long-term risks.”